Last week the SEC announced a settlement of a FCPA enforcement action against Qualcomm, primarily for its hiring of sons and daughters of officials at Chinese state owned enterprises. The company paid a fine and penalty of $7.5MM. To make these illegal employment offers, Qualcomm widely varied from its standard hiring protocols to hire the sons and daughters of officials of a state owned enterprise in China. Consider these business justifications for hiring a daughter of an official, as set out in the SEC Cease and Desist Order that the company not only received the request to hire a daughter and son of foreign officials directly from the foreign officials who held business opportunities for the company, but that the company also put in writing how such hires would facilitate doing business with the state owned enterprises in China. Yet in addition to the hirings—which were made in an effort to obtain business—one company business unit (EVP) made a personal loan of $70,000 to the Princeling to purchase a home.
What is even more amazing about the hiring of the Princeling is that after the initial hiring interview he was rated as a “no hire” because not only was he not a “skill match” for the company, but he did not even “meet the minimum requirements for moving forward with an offer.” Finally, among the Qualcomm team involved in the interview process, “there was an agreement that he would be a drain (not even neutral) on teams he would join.” Yet he was offered a job as a “special favor”. If someone is so unqualified that employing them will negatively impact the company, there must be another very good reason to hire them, such as providing a benefit to their father, who is an official of a state-owned enterprise and thereby subject to the FCPA.
Both of these instances demonstrate clear violations of internal controls around the company’s hiring process. If a candidate does not make it out of the initial interview with anything more that a “no hire” rating, that should be the end of the decision-making process around compliance, full stop. Do not pass go, do not collect $200. As the Order succinctly noted, “FCPA compliance, however, was not considered in Qualcomm’s hiring process.” A fine and penalty for this transgression was clearly warranted, as it was a clear violation of internal controls around the company’s hiring process.